NYS drops benefit for women owners deemed too wealthy

Because Kay Stafford is too rich, the state has revoked her company’s status as a certified woman-owned business.

This month, clients rejected bids from CMA Consulting Services for $22 million of new information-technology projects. They told Stafford that CMA could not get the work because it was no longer certified.

Without the potential work, CMA will have to cut 50 contractors and their employees, Stafford said.

“The state is saying, ‘Don’t grow and make money.’ That is exactly why people are in business,” said Stafford, who is CMA’s founder, president, CEO and majority owner.

The problems flaring up at CMA, and others such as Mohawk Fine Papers Inc., expose a contentious part of state laws aimed at giving a leg up to businesses owned by minorities and women. The state calls them MWBE, or “minority- and woman-owned business enterprises.”

At issue is a law barring a company from having the MWBE seal if the minority or woman owners have too much personal net worth.

The limit: $3.5 million.

This is the first time New York has had such a law, and it is sparking a rift among businesses as more of them confront it. This month, Gov. Andrew Cuomo vetoed a bill easing how the wealth limit is applied.

“So, if you’re successful, you’re going to get punished? Wouldn’t you call that kind of like discrimination against some minorities and woman-owned businesses?” Stafford asked.

Bigger companies insist they still need and merit the MWBE tag, an argument made by CMA ($80 million of revenue, 175 Capital Region employees) and the Mohawk paper mill ($298 million of revenue, 410 Capital Region employees).

“We are flat-out getting our clock cleaned on this,” said Thomas O’Connor Jr., chairman and CEO of the paper mill. “It is oftentimes the differentiator in bids.”

But many legislators contend the MWBE program is geared to nourish very young, small companies. Supporters of the wealth limit say it gives small companies a better shot by getting established firms out of the picture.

“I don’t see this as penalizing them. They should be patting themselves on the back for their success,” said Assemblywoman Crystal Peoples-Stokes (D-Buffalo).

Joseph Gomez wants the state to set the wealth limit even lower. He has 16 employees and $3 million of sales at Gomez Electrical Contractors Inc. in Albany.

“The program is designed to get people a foothold,” said Gomez, a Cuba native who heads the Greater Capital Region Minority Business Association.

“At that net worth, you don’t really need the program. You should be able to fend for yourself,” Gomez said. “You need to remember all the people behind you in need of that program.”

About 6,600 companies have the state’s MWBE approval today. The status gives them an edge in bidding for contracts and access to special capital.

Cuomo, like many before him, wants to funnel more work to the MWBE pool. Cuomo’s target: 20 percent of state contracts, double the current share.

Any momentum to tackle the wealth limit appears stymied.

Cuomo rejected a bill that would have applied the net-worth test to companies entering the MWBE program after late 2010—and kept those that were already certified.

“It was never the intent of the Legislature that the imposition of this threshold should penalize successful MWBEs,” reads a memo from the bill’s sponsors. The bill unanimously passed the Legislature in mid-2011.

Cuomo said he wants to keep studying the issue. The law remains in effect.

Mohawk Fine Papers has now gone two months without MWBE status.

The paper mill does not bid on any New York state contracts. O’Connor, the chairman, said he sought the certification as more corporate clients targeted a slice of their contracts to minority or women businesses.

Opponents of the net worth limit point out that MWBE targets are just that—optional goals.

“The state, and big companies, will now say they don’t know any businesses large enough to deliver their contracts. And yet, those companies that are large enough, the state is now saying they’re not eligible?” asked Marsha Firestone, who runs two national organizations for women-owned companies.

At Mohawk, the MWBE label brought in 18 days of work, or $12 million every year, from a slew of brand names: Disney, Toyota, Apple, AT&T, Marriott, UPS, Hallmark and others.

“I’m not saying we will lose all those 5,000 tons. But if you put those at risk, that is operating days on machines, and that is employment,” O’Connor said.

O’Connor’s family has owned Mohawk Fine Papers for the past 80 years. The business is split in thirds between O’Connor and two aunts, who sit on the board of directors and have held their shares since the mid-1970s.

Both live downstate and were unavailable for comment, O’Connor said.

“They help make all decisions regarding acquisitions, capital investment, sales and marketing,” O’Connor said. “At the end of the day, their two-thirds can out-vote anybody.”

The wealth limit was one part of a package of bills championed by former Gov. David Paterson as he aimed to overhaul the state’s MWBE program.

The idea came from a $1 million state-funded study of its MWBE contracting program, released in 2010.

“New York would be confident that its program is narrowly tailored to only benefit individuals who have clearly suffered social and economic disadvantage, and whose firms are small,” the report says.

No one interviewed was sure how New York’s $3.5 million cut-off point was calculated.

The federal government has similar net-worth rules for its own programs, including a limit of $750,000 for the Small Business Administration’s 8(a) program.

The work of Sen. Ruth Hassell-Thompson (D-Bronx) served as the basis for Paterson’s legislation. She also sponsored the bill Cuomo rejected.

“Most small businesses fail in their first three years. Part of what makes this palatable is the idea we’re trying to grow businesses,” Hassell-Thompson said.

Empire State Development Corp., the state agency that oversees the MWBE program, would not say how many businesses have been kicked out so far.

The agency is evaluating companies as they apply to retain their MWBE status, which must be done every three years. Companies can still bid on state work, just without the advantages of MWBE status.

“We just could not seem to come up with any solution that would not put the whole program in jeopardy,” Hassell-Thompson said.

“I’ve got so many other priorities that unless somebody comes to me with a sense of urgency, I’m not clear I’ll be resubmitting this bill again,” she added.

Stafford, at CMA, said she trusts Cuomo will address her concerns. State records show CMA paid lobbyists at least $47,000 last year to work on four bills, including the one to change the net worth limit.

Stafford has led CMA for more than 25 years, growing it from four to 225 workers in at least three states and Washington, D.C.

She owns 81 precent of CMA, and said she continues to invest personal funds into the business.

Revenue rose 50 percent last year as a major project for the state Department of Health came online.

“The only reason we could do that ... is because we’d been there as a small MWBE company for 10 years before,” Stafford said.

“We can pull other MWBE firms along with us. Now, we are missing those opportunities,” she continued. “It will have a major impact on employees—lots of employees.”

asichko@bizjournals.com | 518-640-6818 | Twitter: @adambizreview

Quick info

Business owners must fill out papers revealing their personal net worth to the state. Here is some of what does, and does not, figure into that calculation: